The commonwealth’s Gateway Cities, stretching from Pittsfield to New Bedford, have struggled to make economic headway over the last decade, in stark contrast to greater Boston’s rapid recovery from the recession.

Advocates for the 26 cities are stepping up their campaign for more state assistance, saying the prosperity gap won’t close until the state offers private developers more incentives to build housing, offices and retail projects.

“We’ve seen there is demand for this urban product, but at the moment the costs outweigh the benefits, because nobody’s going to lend (developers) that money,” said Benjamin Forman, research director for Boston-based think tank MassINC.

Gateway Cities advocates are pinning their hopes on a bill that would boost state investment through an array of grants and tax incentives. Co-sponsored by Sen. Benjamin Downing, D-Pittsfield, and Rep. Antonio Cabral, D-New Bedford, the bill calls for:

• A new $125-million fund containing revolving loans for commercial development, grants for infrastructure and equity protection for homebuyers to rehabilitate properties.
• Expanding the state Economic Development Incentive Program from $25 million to $75 million. The program helps communities pay for neighborhood improvements by issuing bonds which are paid back by taxes on new development.
• Expanding the Housing Development Incentive Program from $5 million to $15 million a year.
• Expanding the Historic Rehabilitation Tax Credit from $50 million to $60 million and accelerating Gateway Cities’ projects ability to receive credits.

The historic tax credit program has been a big hit with developers since it was enacted in 2005. Since then, it has awarded $50 million a year in the form of tax credits equal to 20 percent of the cost of renovations at qualifying properties.

But the program only benefits properties that are certified by the state or National Register of Historic Places as having significant historic value. To fill the gap, the bill seeks to expand grants and tax incentives for non-historic properties, Forman said.

“The historic rehab tax credit was not designed as a neighborhood revitalization program,” Forman said. “Let’s not hamstring ourselves. The best investment may be a vacant parcel that is making an impact on a whole neighborhood.”

Life After Manufacturing

The Gateway Cities initiative began in 2007 as a joint study by MassINC and the Brookings Institution to address the struggles of 11 mid-sized cities across the state, many of which have struggled economically after losing manufacturing jobs. The study focused on Brockton, Fall River, Fitchburg, Haverhill, Holyoke, Lawrence, Lowell, New Bedford, Pittsfield, Springfield and Worcester. The Legislature has since expanded the definition of Gateway Cities to include 26 cities with below-average incomes and educational attainment.

Advocates for more state assistance point to budding growth shoots such as Worcester’s CitySquare mixed-use project at the former Worcester Commons Fashion Outlets site. Developers Hanover Insurance Group and Leggat McCall Properties have used a variety of state and city subsidies at the project, which is anchored by the 214,000-square-foot Unum insurance headquarters that opened in early 2013. The project could eventually encompass up to 2.2 million square feet of development. The next phase calls for a 150-room hotel and 350 units of housing, with the city receiving $11 million from the MassWorks grant program for demolition and other infrastructure costs.

The bill also would change the state’s District Improvement Financing Program (DIF), in which cities can issue bonds for neighborhood improvements tied to a redevelopment and receive payback from future property taxes. For example, Worcester has bonded nearly $20 million for work connected to CitySquare, some of which was offset by state grants.

The bill would shift more DIF financing to the state level, to lessen strains on municipal finances.

“The cities take on a lot of the debt, and it has an impact on the city’s financial capacity,” said Tim McGourthy, Worcester’s former chief economic development officer and now head of the Worcester Regional Research Bureau.

Filed in early 2013, the bill’s prospects got a boost on March 19 when the Legislature’s economic development committee voted to keep it open for consideration through the end of the current session.

“There seems to be a good possibility the bill will be reported out of the committee, and my hope is at least the major provisions will be included,” Cabral said last week.

Competing For High-Paying Jobs

The health of the Class A office market is a one barometer of Gateway Cities’ ability to compete with greater Boston for high-paying jobs.

In Worcester, the largest of the Gateway Cities and the state’s second most populous community, average wages increased from $37,700 to $51,064 between 2001 and 2011. During that decade, Worcester’s biggest employment growth sector was education and health services, which grew by nearly 20 percent, adding 7,138 jobs.

But real wages edged up just 3.4 percent between 2001 and 2011. By contrast, real wages rose nearly 33 percent statewide, according to census data.

Office vacancies are substantially higher than most Route 128 markets, while rents offer a significant discount. Asking rents for Class A office space in Worcester are approximately $20 per square foot, McGourthy said, and a December report by real estate brokerage Colliers International said Worcester’s office vacancy rate was nearly 20 percent at the end of the third quarter.

If Worcester wants to attract major employers, the viability of projects like CitySquare will be a litmus test, McGourthy said.

“It’s having that new central space and bringing in new quality buildings that compete with other commercial areas,” he said. “The rents are lower, so will people be drawn in and choose Worcester?”

A study released last week by the Greater Worcester Chamber of Commerce recommended ways that the region can make itself more attractive to developers.

The regional economic competitive outlook study, compiled by Anderson Strategic Advisors, suggested Worcester switch to a single tax rate to reduce the burden on private industry. Currently, the city has a commercial tax rate of $30.83 per $1,000 in assessed value, which ranks 31st highest out of 351 communities in Massachusetts.

“We think Worcester should be competing more with Boston than it currently does,” said the study’s author, April Anderson Lamoureux. “There’s something that doesn’t match up here.”

The study cited assets such as UMass Memorial Medical Center and its medical school as positioning the region as a growing life science cluster. It calls for Worcester to adopt the local-option tax credit for research and development projects, to maximize growth of life science start-ups.

“We’re strongly recommending the city of Worcester adopt this, because of the intensity of the R&D cluster in the immediate vicinity,” said Lamoreux. “That’s one of the greatest opportunities for the city." 

Email: sadams@thewarrengroup.com